Kossan: Earnings continued to rise

Result Update

For QE31/3/2014, Kossan's net profit increased 20% q-o-q or 23% y-o-y to RM45 million while revenue increased 2% q-o-q or 21% y-o-y to RM369 million. Bottom-line increased due to higher pre-tax profit contribution from the Gloves division, which had more than offset the decline in pre-tax profit contribution from the Technical Rubber division.

The Gloves division saw higher revenue due to higher volume sold (increase of 4.5%) & higher selling prices (increase of 2.5%). Higher  sales,  better product mix and improved production efficiency led to a  28.1%-increase in profit before taxation.

The Technical Rubber Products division saw lower Revenue and PBT due to softer demand as a result of weak world economy & local market uncertainty (caused by GST implementation) plus completion of projects to supply infrastructure projects.

Finally, Kossan's Clean-room division managed to record improved pre-tax profits of 24.8% (to RM0.88 million) despite a marginal 7.2%-decline  in  revenue.


Table: Kossan's last 8 quarterly results

Kossan's top-line & bottom-line continued their steady growth. Due to its efficient production process, the profit margin is also on the upward trend.


Chart 1: Kossan's last 35 quarterly results

Valuation

Kossan (closed at RM6.20 yesterday) is now trading at a PE of 26 times (based on last 4 quarters' EPS of 23.8 sen). At this PE multiple, Kossan is deemed fully valued.

Technical Outlook

Kossan is in a long-term uptrend, with share prices moving higher within a channel. The strong momentum could send the share prices to test the upper line.


Chart 2: Kossan's weekly chart as at May 21, 2015 (Source: ShareInvestor.com)

Conclusion

Based on improved financial performance & positive technical outlook, Kossan is a good stock for long-term investment. However, its demanding valuation could cap its upside potential.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Kossan.